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Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 176260 November 24, 2010

LUCIA BARRAMEDA VDA. DE BALLESTEROS, Petitioner,

vs.
RURAL BANK OF CANAMAN INC., represented by its Liquidator, the philippine deposit insurance
corporation, Respondent.

DECISION

MENDOZA, J.:

This is a petition for review on certiorari under Rule 45 of the Revised Rules of Civil Procedure assailing the August
15, 2006 Decision1 of the Court of Appeals (CA) in CA-G.R. No. 82711, modifying the decision of the Regional Trial
Court of Iriga City, Branch 36 (RTC-Iriga), in Civil Case No. IR-3128, by ordering the consolidation of the said civil
case with Special Proceeding Case No. M-5290 (liquidation case) before the Regional Trial Court of Makati City,
Branch 59 (RTC-Makati).

It appears from the records that on March 17, 2000, petitioner Lucia Barrameda Vda. De Ballesteros (Lucia) filed a
complaint for Annulment of Deed of Extrajudicial Partition, Deed of Mortgage and Damages with prayer for
Preliminary Injunction against her children, Roy, Rito, Amy, Arabel, Rico, Abe, Ponce Rex and Adden, all surnamed
Ballesteros, and the Rural Bank of Canaman, Inc., Baao Branch (RBCI) before the RTC-Iriga. The case was
docketed as Civil Case No. IR-3128.

In her complaint, Lucia alleged that her deceased husband, Eugenio, left two (2) parcels of land located in San
Nicolas, Baao, Camarines Sur, each with an area of 357 square meters; that on March 6, 1995, without her
knowledge and consent, her children executed a deed of extrajudicial partition and waiver of the estate of her
husband wherein all the heirs, including Lucia, agreed to allot the two parcels to Rico Ballesteros (Rico); that, still,
without her knowledge and consent, Rico mortgaged Parcel B of the estate in favor of RBCI which mortgage was
being foreclosed for failure to settle the loan secured by the lot; and that Lucia was occupying Parcel B and had no
other place to live. She prayed that the deed of extrajudicial partition and waiver, and the subsequent mortgage in
favor of RBCI be declared null and void having been executed without her knowledge and consent. She also prayed
for damages.

In its Answer, RBCI claimed that in 1979, Lucia sold one of the two parcels to Rico which represented her share in
the estate of her husband. The extrajudicial partition, waiver and mortgage were all executed with the knowledge
and consent of Lucia although she was not able to sign the document. RBCI further claimed that Parcel B had
already been foreclosed way back in 1999 which fact was known to Lucia through the auctioning notary public.
Attorneys fees were pleaded as counterclaim.

The case was then set for pre-trial conference. During the pre-trial, RBCIs counsel filed a motion to withdraw after
being informed that Philippine Deposit Insurance Corporation (PDIC) would handle the case as RBCI had already
been closed and placed under the receivership of the PDIC. Consequently, on February 4, 2002, the lawyers of
PDIC took over the case of RBCI.

On May 9, 2003, RBCI, through PDIC, filed a motion to dismiss on the ground that the RTC-Iriga has no jurisdiction
over the subject matter of the action. RBCI stated that pursuant to Section 30, Republic Act No. 7653 (RA No.

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7653), otherwise known as the "New Central Bank Act," the RTC-Makati, already constituted itself, per its Order
dated August 10, 2001, as the liquidation court to assist PDIC in undertaking the liquidation of RBCI. Thus, the
subject matter of Civil Case No. IR-3128 fell within the exclusive jurisdiction of such liquidation court. Lucia opposed
the motion.

On July 29, 2003, the RTC-Iriga issued an order2 granting the Motion to Dismiss, to wit:

This resolves the Motion to Dismiss filed by the defendant Rural Bank of Canaman, Inc., premised on the ground
that this court has no jurisdiction over the subject matter of the action. This issue of jurisdiction was raised in view of
the pronouncement of the Supreme Court in Ong v. C.A. 253 SCRA 105 and in the case of Hernandez v. Rural Bank
of Lucena, Inc., G.R. No. L-29791 dated January 10, 1978, wherein it was held that "the liquidation court shall have
jurisdiction to adjudicate all claims against the bank whether they be against assets of the insolvent bank, for
Specific Performance, Breach of Contract, Damages or whatever."

It is in view of this jurisprudential pronouncement made by no less than the Supreme Court, that this case is, as far
as defendant Rural Bank of Canaman Inc., is concerned, hereby ordered DISMISSED without prejudice on the part
of the plaintiff to ventilate their claim before the Liquidation Court now, RTC Branch 59, Makati City.

SO ORDERED.

Not in conformity, Lucia appealed the RTC ruling to the CA on the ground that the RTC-Iriga erred in dismissing the
case because it had jurisdiction over Civil Case No. IR-3128 under the rule on adherence of jurisdiction.

On August 15, 2006, the CA rendered the questioned decision ordering the consolidation of Civil Case No. IR-3128
and the liquidation case pending before RTC-Makati. The appellate court ratiocinated thus:

The consolidation is desirable in order to prevent confusion, to avoid multiplicity of suits and to save unnecessary
cost and expense. Needless to add, this procedure is well in accord with the principle that the rules of procedure
shall be liberally construed in order to promote their object and to assist the parties in obtaining just, speedy and
inexpensive determination of every action and proceeding (Vallacar Transit, Inc. v. Yap, 126 SCRA 500 [1983];
Suntay v. Aguiluz, 209 SCRA 500 [1992] citing Ramos v. Ebarle, 182 SCRA 245 [1990]). It would be more in
keeping with the demands of equity if the cases are simply ordered consolidated. Pursuant to Section 2, Rule 1,
Revised Rules of Court, the rules on consolidation should be liberally construed to achieve the object of the parties
in obtaining just, speedy and inexpensive determination of their cases (Allied Banking Corporation v. Court of
Appeals, 259 SCRA 371 [1996]).

The dispositive portion of the decision reads:

IN VIEW OF ALL THE FOREGOING, the appealed decision is hereby MODIFIED, in such a way that the dismissal
of this case (Civil Case No. IR-3128) is set aside and in lieu thereof another one is entered ordering the
consolidation of said case with the liquidation case docketed as Special Proceeding No. M-5290 before Branch 59
of the Regional Trial Court of Makati City, entitled "In Re: Assistance in the Judicial Liquidation of Rural Bank of
Canaman, Camarines Sur, Inc., Philippine Deposit Corporation, Petitioner." No pronouncement as to cost.

SO ORDERED.3

Lucia filed a motion for reconsideration4 but it was denied by the CA in its Resolution dated December 14, 2006.5

Hence, the present petition for review on certiorari anchored on the following

GROUNDS

(I)

THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE REGIONAL TRIAL COURT OF IRIGA
CITY, BRANCH 36 IS VESTED WITH JURISDICTION TO CONTINUE TRYING AND ULTIMATELY DECIDE
CIVIL CASE NO. IR-3128.

(II)

THE COURT OF APPEALS ERRED AND GRAVELY ABUSED ITS DISCRETION IN ORDERING THE

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CONSOLIDATION OF CIVIL CASE NO. IR-3128 WITH THE LIQUIDATION CASE DOCKETED AS SPECIAL
PROCEEDINGS NO. M-5290 BEFORE BRANCH 59 OF THE REGIONAL TRIAL COURT OF MAKATI CITY.6

Given the foregoing arguments, the Court finds that the core issue to be resolved in this petition involves a
determination of whether a liquidation court can take cognizance of a case wherein the main cause of action is not a
simple money claim against a bank ordered closed, placed under receivership of the PDIC, and undergoing a
liquidation proceeding.

Lucia contends that the RTC-Iriga is vested with jurisdiction over Civil Case No. 3128, the constitution of the
liquidation court notwithstanding. According to her, the case was filed before the RTC-Iriga on March 17, 2000 at the
time RBCI was still doing business or before the defendant bank was placed under receivership of PDIC in January
2001.

She further argues that the consolidation of the two cases is improper. Her case, which is for annulment of deed of
partition and waiver, deed of mortgage and damages, cannot be legally brought before the RTC-Makati with the
liquidation case considering that her cause of action against RBCI is not a simple claim arising out of a creditor-
debtor relationship, but one which involves her rights and interest over a certain property irregularly acquired by
RBCI. Neither is she a creditor of the bank, as only the creditors of the insolvent bank are allowed to file and
ventilate claims before the liquidator, pursuant to the August 10, 2001 Order of the RTC-Makati which granted the
petition for assistance in the liquidation of RBCI.

In its Comment,7 PDIC, as liquidator of RBCI, counters that the consolidation of Civil Case No. 3128 with the
liquidation proceeding is proper. It posits that the liquidation court of RBCI, having been established, shall have
exclusive jurisdiction over all claims against the said bank.

After due consideration, the Court finds the petition devoid of merit.

Lucias argument, that the RTC-Iriga is vested with jurisdiction to continue trying Civil Case No. IR-3128 until its final
disposition, evidently falls out from a strained interpretation of the law and jurisprudence. She contends that:

Since the RTC-Iriga has already obtained jurisdiction over the case it should continue exercising such jurisdiction
until the final termination of the case. The jurisdiction of a court once attached cannot be ousted by subsequent
happenings or events, although of a character which would have prevented jurisdiction from attaching in the first
instance, and the Court retains jurisdiction until it finally disposes of the case (Aruego Jr. v. Court of Appeals, 254
SCRA 711).

When a court has already obtained and is exercising jurisdiction over a controversy, its jurisdiction to proceed to
final determination of the case is not affected by a new legislation transferring jurisdiction over such proceedings to
another tribunal. (Alindao v. Joson, 264 SCRA 211). Once jurisdiction is vested, the same is retained up to the end
of the litigation (Bernate v. Court of Appeals, 263 SCRA 323).8

The afore-quoted cases, cited by Lucia to bolster the plea for the continuance of her case, find no application in the
case at bench.

Indeed, the Court recognizes the doctrine on adherence of jurisdiction. Lucia, however, must be reminded that such
principle is not without exceptions. It is well to quote the ruling of the CA on this matter, thus:

This Court is not unmindful nor unaware of the doctrine on the adherence of jurisdiction. However, the rule on
adherence of jurisdiction is not absolute and has exceptions. One of the exceptions is that when the change in
jurisdiction is curative in character (Garcia v. Martinez, 90 SCRA 331 [1979]; Calderon, Sr. v. Court of Appeals, 100
SCRA 459 [1980]; Atlas Fertilizer Corporation v. Navarro, 149 SCRA 432 [1987]; Abad v. RTC of Manila, Br. Lll, 154
SCRA 664 [1987]).

For sure, Section 30, R.A. 7653 is curative in character when it declared that the liquidation court shall have
jurisdiction in the same proceedings to assist in the adjudication of the disputed claims against the Bank. The
interpretation of this Section (formerly Section 29, R.A. 265) becomes more obvious in the light of its intent. In
Manalo v. Court of Appeals (366 SCRA 752, [2001]), the Supreme Court says:

xxx The requirement that all claims against the bank be pursued in the liquidation proceedings filed by the Central
Bank is intended to prevent multiplicity of actions against the insolvent bank and designed to establish due process

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and orderliness in the liquidation of the bank, to obviate the proliferation of litigations and to avoid injustice and
arbitrariness (citing Ong v. CA, 253 SCRA 105 [1996]). The lawmaking body contemplated that for convenience,
only one court, if possible, should pass upon the claims against the insolvent bank and that the liquidation court
should assist the Superintendents of Banks and regulate his operations (citing Central Bank of the Philippines, et al.
v. CA, et al., 163 SCRA 482 [1988]).9

As regards Lucias contention that jurisdiction already attached when Civil Case No. IR-3128 was filed with, and
jurisdiction obtained by, the RTC-Iriga prior to the filing of the liquidation case before the RTC-Makati, her stance
fails to persuade this Court. In refuting this assertion, respondent PDIC cited the case of Lipana v. Development
Bank of Rizal10 where it was held that the time of the filing of the complaint is immaterial, viz:

It is the contention of petitioners, however, that the placing under receivership of Respondent Bank long after the
filing of the complaint removed it from the doctrine in the said Morfe Case.

This contention is untenable. The time of the filing of the complaint is immaterial. It is the execution that will
obviously prejudice the other depositors and creditors. Moreover, as stated in the said Morfe case, the effect of the
judgment is only to fix the amount of the debt, and not to give priority over other depositors and creditors.

The cited Morfe case11 held that "after the Monetary Board has declared that a bank is insolvent and has ordered it
to cease operations, the Board becomes the trustee of its assets for the equal benefit of all the creditors, including
depositors. The assets of the insolvent banking institution are held in trust for the equal benefit of all creditors, and
after its insolvency, one cannot obtain an advantage or a preference over another by an attachment, execution or
otherwise."

Thus, to allow Lucias case to proceed independently of the liquidation case, a possibility of favorable judgment and
execution thereof against the assets of RBCI would not only prejudice the other creditors and depositors but would
defeat the very purpose for which a liquidation court was constituted as well.

Anent the second issue, Lucia faults the CA in directing the consolidation of Civil Case No. IR-3128 with Special
Proceedings No. M-5290. The CA committed no error. Lucias complaint involving annulment of deed of mortgage
and damages falls within the purview of a disputed claim in contemplation of Section 30 of R.A. 7653 (The New
Central Bank Act). The jurisdiction should be lodged with the liquidation court. Section 30 provides:

Sec. 30. Proceedings in Receivership and Liquidation. - Whenever, upon report of the head of the supervising or
examining department, the Monetary Board finds that a bank or quasi-bank:

(a) is unable to pay its liabilities as they become due in the ordinary course of business: Provided, That this
shall not include inability to pay caused by extraordinary demands induced by financial panic in the banking
community;

(b) has insufficient realizable assets, as determined by the Bangko Sentral, to meet its liabilities; or

(c) cannot continue in business without involving probable losses to its depositors or creditors; or

(d) has wilfully violated a cease and desist order under Section 37 that has become final, involving acts or
transactions which amount to fraud or a dissipation of the assets of the institution; in which cases, the
Monetary Board may summarily and without need for prior hearing forbid the institution from doing business
in the Philippines and designate the Philippine Deposit Insurance Corporation as receiver of the banking
institution.

For a quasi-bank, any person of recognized competence in banking or finance may be designated as receiver.

The receiver shall immediately gather and take charge of all the assets and liabilities of the institution, administer the
same for the benefit of its creditors, and exercise the general powers of a receiver under the Revised Rules of Court
but shall not, with the exception of administrative expenditures, pay or commit any act that will involve the transfer or
disposition of any asset of the institution: Provided, That the receiver may deposit or place the funds of the institution
in non-speculative investments. The receiver shall determine as soon as possible, but not later than ninety (90) days
from take over, whether the institution may be rehabilitated or otherwise placed in such a condition that it may be
permitted to resume business with safety to its depositors and creditors and the general public: Provided, That any
determination for the resumption of business of the institution shall be subject to prior approval of the Monetary

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Board.

If the receiver determines that the institution cannot be rehabilitated or permitted to resume business in accordance
with the next preceding paragraph, the Monetary Board shall notify in writing the board of directors of its findings
and direct the receiver to proceed with the liquidation of the institution. The receiver shall:

(1) file ex parte with the proper regional trial court, and without requirement of prior notice or any other action,
a petition for assistance in the liquidation of the institution pursuant to a liquidation plan adopted by the
Philippine Deposit Insurance Corporation for general application to all closed banks. In case of quasi-banks,
the liquidation plan shall be adopted by the Monetary Board. Upon acquiring jurisdiction, the court shall, upon
motion by the receiver after due notice, adjudicate disputed claims against the institution, assist the
enforcement of individual liabilities of the stockholders, directors and officers, and decide on other issues as
may be material to implement the liquidation plan adopted. The receiver shall pay the cost of the proceedings
from the assets of the institution.

(2) convert the assets of the institution to money, dispose of the same to creditors and other parties, for the
purpose of paying the debts of such institution in accordance with the rules on concurrence and preference of
credit under the Civil Code of the Philippines and he may, in the name of the institution, and with the
assistance of counsel as he may retain, institute such actions as may be necessary to collect and recover
accounts and assets of, or defend any action against, the institution. The assets of an institution under
receivership or liquidation shall be deemed in custodia legis in the hands of the receiver and shall, from the
moment the institution was placed under such receivership or liquidation, be exempt from any order of
garnishment, levy, attachment, or execution. [Emphasis supplied]

xxx

"Disputed claims" refers to all claims, whether they be against the assets of the insolvent bank, for specific
performance, breach of contract, damages, or whatever.12 Lucias action being a claim against RBCI can properly
be consolidated with the liquidation proceedings before the RTC-Makati. A liquidation proceeding has been
explained in the case of In Re: Petition For Assistance in the Liquidation of the Rural Bank of BOKOD (Benguet),
Inc. v. Bureau of Internal Revenue13 as follows:

A liquidation proceeding is a single proceeding which consists of a number of cases properly classified as "claims."
It is basically a two-phased proceeding. The first phase is concerned with the approval and disapproval of claims.
Upon the approval of the petition seeking the assistance of the proper court in the liquidation of a closed entity, all
money claims against the bank are required to be filed with the liquidation court. This phase may end with the
declaration by the liquidation court that the claim is not proper or without basis. On the other hand, it may also end
with the liquidation court allowing the claim. In the latter case, the claim shall be classified whether it is ordinary or
preferred, and thereafter included Liquidator. In either case, the order allowing or disallowing a particular claim is
final order, and may be appealed by the party aggrieved thereby.

The second phase involves the approval by the Court of the distribution plan prepared by the duly appointed
liquidator. The distribution plan specifies in detail the total amount available for distribution to creditors whose claim
were earlier allowed. The Order finally disposes of the issue of how much property is available for disposal.
Moreover, it ushers in the final phase of the liquidation proceeding - payment of all allowed claims in accordance
with the order of legal priority and the approved distribution plan.

xxx

A liquidation proceeding is commenced by the filing of a single petition by the Solicitor General with a court of
competent jurisdiction entitled, "Petition for Assistance in the Liquidation of e.g., Pacific Banking Corporation." All
claims against the insolvent are required to be filed with the liquidation court. Although the claims are litigated in the
same proceeding, the treatment is individual. Each claim is heard separately. And the Order issued relative to a
particular claim applies only to said claim, leaving the other claims unaffected, as each claim is considered separate
and distinct from the others. x x x [Emphasis supplied.]

It is clear, therefore, that the liquidation court has jurisdiction over all claims, including that of Lucia against the
insolvent bank. As declared in Miranda v. Philippine Deposit Insurance Corporation,14 regular courts do not have
jurisdiction over actions filed by claimants against an insolvent bank, unless there is a clear showing that the action
taken by the BSP, through the Monetary Board, in the closure of financial institutions was in excess of jurisdiction, or

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with grave abuse of discretion. The same is not obtaining in this present case. 1avvphi1

The power and authority of the Monetary Board to close banks and liquidate them thereafter when public interest so
requires is an exercise of the police power of the State. Police power, however, is subject to judicial inquiry. It may
not be exercised arbitrarily or unreasonably and could be set aside if it is either capricious, discriminatory, whimsical,
arbitrary, unjust, or is tantamount to a denial of due process and equal protection clauses of the Constitution.15

In sum, this Court holds that the consolidation is proper considering that the liquidation court has jurisdiction over
Lucias action. It would be more in keeping with law and equity if Lucias case is consolidated with the liquidation
case in order to expeditiously determine whether she is entitled to recover the property subject of mortgage from
RBCI and, if so, how much she is entitled to receive from the remaining assets of the bank.

WHEREFORE, the petition is DENIED.

SO ORDERED.

JOSE CATRAL MENDOZA

Associate Justice

WE CONCUR:

ANTONIO T. CARPIO
Associate Justice
Chairperson

ANTONIO EDUARDO B. NACHURA DIOSDADO M. PERALTA

Associate Justice Associate Justice

ROBERTO A. ABAD
Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned
to the writer of the opinion of the Courts Division.

ANTONIO T. CARPIO
Associate Justice
Chairperson, Second Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairpersons Attestation, I certify that the
conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of
the opinion of the Courts Division.

RENATO C. CORONA
Chief Justice

Footnotes

1 Rollo, pp. 16-24. Penned by Associate Justice Conrado M. Vasquez, Jr. with Associate Justices Rebecca
De Guia Salvador and Vicente S.E. Veloso, concurring.
2 Annex C of petition, id. at 29.

3 Id. at 24.

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4 Annex I of petition, id. at 65.

5 Id. at 28.

6 Id. at 8.

7 Id. at 74.

8 Id. at 9.

9 Id. at 21-22.

10 238 Phil. 246, 252 (1987).

11 Central Bank of the Philippines v. Morfe, 159 Phil. 727 (1975).

12 Miranda v. Philippine Deposit Insurance Corporation, G.R. 169334, September 8, 2006, 501 SCRA 288,
298, citing Ong v. Court of Appeals, 323 Phil. 126, 131 (1996).
13 G.R. No. 158261, December 18, 2006, 511 SCRA 123, 149-150, citing Pacific Banking Corporation
Employees Organization (PaBCEO) v. Court of Appeals, 312 Phil. 578 (1995).
14 G.R. No. 169334, September 8, 2006, 501 SCRA 288, 297.

15 Miranda v. Philippine Deposit Insurance Corporation, G.R. No. 169334, September 8, 2006, 501 SCRA
288, 297, citing Banco Filipino Savings and Mortgage Bank v. Monetary Board, Central Bank of the
Philippines, G.R. Nos. 70054, 68878, 77255-58, 78766, 78767, 78894, 81303, 81304, 90473, December 11,
1991, 204 SCRA 767, 798.

The Lawphil Project - Arellano Law Foundation

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